Wednesday’s bond market has opened up sharply due to early stock selling and more concerns about foreign banking and financial issues. The stock markets are having a delayed reaction to news from Spain that raised concerns yesterday about a potentially major crisis in the near future. Stocks rallied yesterday despite the concerning news that came out over the holiday weekend. It appeared that stock traders weren’t too worried that Spain could follow the same track as Greece did, pushing the Dow up 125 points yesterday.
What a difference one day can make. The major stock indexes are posting sizable losses this morning with the Dow down 147 points and the Nasdaq down 39 points, erasing yesterday’s gains. The bond market is currently up 29/32, which should improve this morning’s mortgage rates by approximately .250 of a discount point over yesterday’s morning pricing. Limiting this morning’s improvement is weakness in yesterday’s afternoon bond trading that came as a result of stocks being able to hold onto their gains. If your lender revised their pricing higher yesterday afternoon, you may see a bit more of an improvement than the .250 that most are seeing today.
There is nothing of relevance scheduled for release today in terms of economic data or related events. This is leaving stock movement to influence bond trading and mortgagerates this morning. So far, this is a good thing for mortgage borrowers. As long as the major stock indexes don’t stage a significant rally later today, we should see mortgagerates remain near current levels or possibly even improve slightly. Also, the fact that we are seeing the expected reaction in stocks, I am shifting to a more optimistic approach towards mortgage rates, at least for the time being.
Tomorrow has two pieces of economic news being posted, both at 8:30 AM ET. The first one is the first of two revisions to the 1st quarter Gross Domestic Product (GDP). The second revision to this index comes next month but isn’t expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month’s preliminary reading revealed a 2.2% increase in the annual rate of growth. Analysts expect a downward revision to this reading with the consensus being a 2.0% rate of growth. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. On the other hand, a much weaker reading could lead to stock selling, another bond rally and lower mortgage rates tomorrow morning.
We also will get last week’s unemployment numbers from the Labor Department. They are expected to announce that 368,000 new claims for unemployment benefits were filed last week, down slightly from the previous week’s total of 370,000. However, I would not be surprised to see yet another upward revision to the previous week’s number, making it difficult for us to give much credence to the weekly numbers. Generally speaking, the higher the number of new claims, the better the news for mortgage rates because it would indicate employment sector weakness. If it shows a large decline in new claims, meaning the sector strengthened last week, we may see bond prices slip and mortgagerates rise slightly.